If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Deleum Berhad (KLSE:DELEUM) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Deleum Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = RM92m ÷ (RM709m - RM220m) (Based on the trailing twelve months to June 2024).
Thus, Deleum Berhad has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 14% it's much better.
See our latest analysis for Deleum Berhad
Above you can see how the current ROCE for Deleum Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Deleum Berhad .
So How Is Deleum Berhad's ROCE Trending?
Investors would be pleased with what's happening at Deleum Berhad. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 26%. So we're very much inspired by what we're seeing at Deleum Berhad thanks to its ability to profitably reinvest capital.
One more thing to note, Deleum Berhad has decreased current liabilities to 31% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Bottom Line On Deleum Berhad's ROCE
In summary, it's great to see that Deleum Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 82% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.